The Next Generation Problem: the Ups and Downs of Sweden’S Huawei Ban Johannes Nordin
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Issue Brief February 18, 2021 The Next Generation Problem: The Ups and Downs of Sweden’s Huawei Ban Johannes Nordin After months of pending legal challenges, Sweden proceeded with the long-delayed 5G-frequency auctions in January this year, finally allowing Swedish telecom providers to continue the 5G-rollout; however, still without partnerships with Chinese 5G-equipment provider Huawei Technologies, which remains banned from Swedish networks on national security grounds. The ban was upheld in court on February 09 and has now put Stockholm on an open collision course with Beijing, which has threatened retaliation against Swedish businesses in China. In completely excluding Huawei, Sweden has, atypically, joined ranks with the U.S., the UK, Japan, New Zealand, and Australia, willingly or not getting pulled into the fray of the Sino-American rivalry. On the sidelines of a play involving government officials, national intelligence services, Swedish industry, telecom providers, Brussels, Washington, and Beijing, other European states are now keenly observing the Swedish experience with interest. Will Beijing make a discouraging example of Stockholm, or will the latter call bluff? Whatever the final answer may be, it is sure to set a precedent. To this end, this Issue Brief aims to explore Sweden’s experience thus far and outline the possible implications for the future. A Year in Review: guidelines and coordination – a toolbox– leaving practical enforcement to the member states, stopping In January 2020, the European Commission short of the all-out pre-emptive ban called for by the presented the EU’s common cybersecurity approach U.S. for 5G networks, entitled the “EU Toolbox.” The toolbox sets some common standards and calls Not being behind the curb, Sweden updated the for legal measures allowing for the “restriction of Electronic Communications Act the very same involvement of suppliers based on their risk profile,” month, adding provisions that allow the Post and with risk calculated from both technological and Telecom Authority (PTS) to withhold the sale of strategic perspectives.1 However, as the naming radiocommunications licenses on national security convention implies, the EU approach offers only grounds.2 The Swedish government, historically 1 Issue Brief February 18, 2021 a forerunner in implementing new wireless decision.9 However, the decision also stocked anger communication standards, had already in 2018 in Beijing. Both the Chinese Foreign Ministry and signed a letter of intent with other Nordic countries the Chinese ambassador pushed back forcefully on to develop an integrated 5G-region and had been allegations that Huawei would be unsafe, making taking anticipatory measures for some time.3 As the veiled threats that there would “undoubtedly” be revised law was introduced, Minister of Digitalization consequences for Swedish businesses operating in Anders Ygeman clarified it “would not be directed China.10 While Sweden makes up a relatively small at any specific operator, provider, or nation.”4 Yet, share of Huawei’s global operations, the ban has the things would take a turn in the following months. potential to set a precedent for other EU countries to follow, either successfully defying Beijing, rallying others to follow, or deterring if it comes at too high Huawei soon found an a cost. unexpected ally in Ericsson, Swedish industry quickly took note, and Huawei one of its main competitors. soon found an unexpected ally in Ericsson, one of its main competitors. In the subsequent months, In March, the Swedish Security Service (SÄPO) Ericsson’s CEO, Börje Ekholm, personally lobbied highlighted Beijing, alongside Moscow, as Sweden’s Anna Hallberg, Minister for Foreign Trade and largest cybersecurity threat in its 2019 Yearbook, Nordic Affairs, to reverse PTS’ decision. Ekholm citing extensive signals intelligence and theft of cited risks of blowback in China and the critical intellectual property and research.5 Acting on these 5G rollout delays, which could undermine Swedish concerns in July, SÄPO, PTS, and the Armed Forces long-term competitiveness in the tech sector.11 The began a joint investigation into Swedish telecom Swedish market makes up a relatively small part of providers’ 5G-plans, aiming to determine whether Ericsson’s global operations and is dwarfed by the they presented risks to national security.6 Three vast Chinese market, which already today makes months later, on October 20, PTS announced the up thirteen percent of Ericsson’s total revenue, a accepted applicants for the 5G-frequency auctions share only set to grow in the years ahead.12 Indeed, scheduled for early November. The announcement Ericsson’s full-year report for 2020 highlighted how included the requirement that all telecom providers the third quarter saw the highest gross margin levels would be barred from using equipment from vendors since 2006, pointing out the Chinese 5G-rollout as Huawei and ZTE, likewise setting a timeline for a key driver in growing sales.13 Ericsson is notably when all existing equipment would have to be the only non-Chinese company to have won 5G removed from current 4G-networks.7 contracts with all three major telecom operators in China, landing a double-digit share of a massive 5G The surprise announcement, released just a month tender in 2020 that saw Finnish Nokia walk home ahead of the scheduled auctions, caught both emptyhanded.14 Jacob Wallenberg, chairman of Huawei and the telecom providers off-guard. Investor AB, Sweden’s largest conglomerate holding Huawei immediately appealed PTS’ decision, citing company, has for similar reasons come to Huawei’s procedural misconduct as the agency had neglected defense but refused to comment on the security to notify and hear Huawei’s argument, requesting aspects of PTS’ decision.15 the decision to be halted until the case had been resolved.8 Similarly, several telecom providers urged Only days before the scheduled 5G auctions, the the auctions to be postponed, noting the billions of Administrative Court of Appeals granted Huawei’s investments (SEK) at stake, complaining that they request to temporarily freeze the decision barring had not been notified earlier. The telecom provider Huawei equipment, citing the irrecuperable “Three” notably joined Huawei in appealing PTS’ economic damage inflicted if the PTS’ decision 2 Issue Brief February 18, 2021 would turn out inaccurate.16 The verdict effectively in Sweden have all contributed to record low levels forced the postponement of the auctions into of public trust in China – in fact, the lowest degree 2021. Yet, the ruling was soon overturned only a of trust in all of Europe at only 15 percent. While month later by a superior Administrative Court, most recognize China’s growing importance for which cited the greater weight of Sweden’s public the economy and as an essential partner in solving interest vis-á-vis Huawei as a corporate entity in not critical global challenges, like climate change, delaying the critical 5G-rollout.17 It further noted less than 20 percent support cooperation on 5G.25 how Huawei, either way, was not a direct party to This dynamic has undoubtedly played a role in the 5G-auctions. With that, Huawei had emptied Stockholm’s uncharacteristically tough stance on its legal remedies within the court system, and the China compared to the rest of Europe. attempt to appeal to the Highest Administrative Court was denied. Huawei now had to wait for a ruling on the main lawsuit concerned with the Excessive restrictions PTS’s decision itself. However, company leadership on Chinese business in appealed unsuccessfully to the Swedish government in an open letter, urging it to step in and reverse the Europe can also trigger decision, warning they may be forced to take the case reciprocal barriers for for international arbitration as a last resort, citing the Sino-Swedish Investor Agreement of 1982.18 European companies. PTS held the auctions on January 19, worth 2.3 Sweden’s Lone Stance bn SEK.19 Whereas carriers Telia and state-owned Teracom AB had never used Huawei equipment in Sweden has undoubtedly taken the strongest the first place, Tele2 and Telenor announced they position on 5G-networks among the Nordic had now chosen Ericsson over Huawei for their countries. Whereas Sweden has followed the lead of joint 5G-venture, leaving Three as the only one still the U.S.-UK-led Anglosphere, its Nordic Neighbors hoping to use Huawei in its networks. Minister of have more in common with countries in continental Digitalization Ygeman underscored the great need Europe, where heavyweights like Germany, France, not to delay auctions any further.20 After the auctions, and Italy have all taken more cautious stances. Their Beijing’s Ministry of Commerce Spokesperson, independent investigations have been unable to find Gao Feng, urged Sweden to “immediately correct any alarming backdoors in Huawei equipment,26 in the mistake,” which violates WTO rules under the contrast to equipment made by U.S.-based Cisco disguise of “national security,” adding that China (Berlin has yet to forget the Obama administration’s will respond with “all necessary measures.”21 With wiretapping of Angela Merkel).27 Moreover, security the Huawei ban upheld in court on February 09, concerns aside, Huawei equipment is considerably it remains to be seen what form the measures will cheaper than the competition. Telecom carriers with take.22 substantial Huawei partnerships, such as Deutsche Telecom, would see significant losses and year-long Beijing’s